Mexico Has Vast Untapped Oil Reserves — In A Part Of The Country Wracked With Drug Violence

Members of a civil defense group walk next a group of Mexican marines after disarming a group of police officers in San Miguel Aquila in Michoacan state, on July 24, 2013. Reuters Mexico has extraordinary untapped natural resources: "an estimated 545 trillion cubic feet of technically recoverable shale gas and 13 billion barrels of shale oil," according to an analysis by Nick Cunningham for OilPrice.com.

But as Cunningham notes, a resurgence in drug violence could endanger the Mexican oil industry at a time of expanding opportunity.

Drug-related violence has killed as many as 80,000 people in Mexico since then-president Filipe Calderon deployed the army to cartel-dominated parts of the country in December of 2006. Violence declined in the early years of this decade. But the Mexican government's capture of Sinaloa Cartel boss Chapo Guzman in February has fed an increasingly violent power vacuum.

Since the drug wars kicked off, Mexico's economy has weathered some of the worst violence in the western hemisphere — and some of the worst years of the global economy writ large.

The country swiftly recovered from a sharp 2009 recession, and its economy grew 5% and 4.1% during the next two years. U.S.-Mexican trade is now worth some $500 billion annually, and the Mexican senate government overturned the seven-decade policy of nationalizing the country's subterranean resources in late 2013. Drug violence has ebbed at the same time that one Mexico's largest industries is liberalizing.

And Mexico is a vast country of over 113 million people. If the country's growth amidst war-like levels of violence proves anything, it's that events in one part of Mexico don't necessarily doom the whole.

Yet Cunningham's analysis touches on a crucial point. The violence ramifying from the capture of Chapo Guzman and the resurgence of the brutal Los Zetas cartel has hit the areas most crucial to a post-privatization Mexican oil boom.

The Mexican state of Tamaulipas is home to the Burgos Basin oil area, and isn't far from Texas, the center of the U.S.'s domestic oil industry. But American contractors aren't going to want to put down stakes in a war zone.

As the Christian Science Monitor explained in a report in late May, the Zetas effectively control the drug trade in two of the state's major border towns, while a spike in violence has led Nieto to dispatch 1,000 federal troops to the state.

Even if the drug war's cooled down more generally throughout Mexico, it's at its worst in just the place where Mexico's economic potential is at its highest.

And the drug war's caused some specific problems for the oil industry. As Cunningham recounts, gangsters shot up a hotel in Tamaulipas where oil contractors were staying, and drug trafficking organizations siphoned $790 million worth of fuel from Mexican pipelines in 2013.

Tamaulipas was once a success story: it's murder rate halved between 2012 and 2013. Even now, "Tampico, a port city of 300,000 with oil refineries, palm trees and Starbucks, looks remarkably tidy for all the chaos," the Washington Post recently reported.

But it's current troubles are a microcosm of the cyclical and uncontrollable character of Mexico's drug violence. It's currently impossible for the Mexican government to go after big-name drug traffickers without opening up opportunities for their rivals. The Mexican state doesn't yet have the competence or the broad-based trust needed to reap the peace dividend when it makes a major capture. So it's groups like the Zetas that fill the gap when a trafficker goes down — and not the forces of law and order.

Tamaulipas's period of calm didn't last long. And now the state's chaos threatens to arrest one of the most promising sources of future Mexican economic growth.